The tax exemption limit has been raised to 1.5 lakhs from 1 lakhs in union budget 2014-15. So you have scope to invest extra Rs.50000 to save tax. I want to discuss about best tax saving investment options. My first choice is PPF for tax saving investment and my second choice is ELSS fund for tax saving investment. If you can take risk then invest on it. It can give you high return in three years. My third choice is Bank Deposit for tax saving investment. Now go ahead to know more about tax saving investment.
Public Provident Fund (PPF) for Tax Saving Investment
PPF is favourites for tax saving investment. One can invest up to 1.5lakhs per annum on it. Minimum investment is Rs.500 per years. You have to maintain this minimum balance per years otherwise you will be fined Rs.50. Lock in period in PPF is 15 years. You can open another PPF account for your minor but remember total contribution of both accounts should not exceed Rs.1.5 lakh. You can extend the tenure for five years after completing 15 years term. PPF allows partial withdraw from sixth financial year. Maximum withdraw limit is 50 per cent of the balance of fourth year. NRI cannot open PPF account. If one is resident and he/she will become NRI then he/she can continue his/her account for 15 years. Interest rate in PPF for financial year 2016-17 is 8.1% per year. Income from interest in PPF is not taxable.
Equity-Linked Savings Scheme (ELSS) for Tax Saving Investment
ELLS can give high return nearly 20%. But risk lie on it. Because ELSS mutual fund invest in equity related instruments. Minimum investment is very low only Rs.500 per month. ELSS has short lock in period only three years. Main advantage in ELSS is its lock in period and high return. You have to wait long time for getting return from other tax saving investment but ELSS give you return in 3 years with high interest where you will get return from PPF after 15 years or from Tax Saving Bank FD after 5 years.
List of some high return Mutual Fund for tax saving investment with return rate in three years
Axis Long Term Equity Fund – 24.78%.
Birla Sun Life Tax Plan -24.01%.
Birla Sun Life Tax Relief 96 -25.01%.
DSP BlackRock Tax Saver Fund-26.15%
Franklin India Taxshield Fund -24.18%.
ICICI Prudential Long Term Equity Fund (Tax Saving)-22.38%.
IDBI Equity Advantage Fund-25.66%.
(All return rate are update on 19.02.2017)
Tax Saving Bank FD for Tax Saving Investment
Tax Saving Bank FD is one of the favourite tax saving investment. It has five years lock in period. You cannot withdraw from it before maturity. Interest income is fully taxable in this scheme. Tax Saving Bank FD comes with pre-agreed interest rate.
Unit Linked Insurance Plan (ULIP) for Tax Saving Investment
ULIPs have become more attractive tax saving investment plan after reform IRDA guide line on 1st September 2010. To get high return from this plan you have to hold it for at least 11-15 years. HDFC Life has recently launched an online unit linked plan called Click2Invest. This plan invests 100 per cent of the premium. There are no charge of premium allocation and Policy administration. The plan only has charges of fund management fee 1.35%. You can read my previous article about HDFC Click2Invest.
You may also like HDFC Life launches online unit linked insurance plan and buy LIC e-term policy online